State blocks dividend by malpractice insurer

After subsidy program, payout plan is questioned

The Maryland Insurance Administration blocked yesterday plans by the state's largest medical malpractice insurer to pay a nearly $69 million dividend, declaring that it will hold a hearing to decide how much money the state - as opposed to doctors - should get.

The order thrusts medical malpractice insurance back into the spotlight less than three years after a special, and contentious, legislative session was called to address skyrocketing premiums, which the state's political leaders and medical establishment called a crisis. Lawmakers approved a four-year subsidy program and imposed a tax on HMO premiums to pay for it.

Now, one legislator said, the planned multimillion-dollar dividend calls into question whether the subsidies were necessary.

Maryland Insurance Commissioner Ralph S. Tyler said yesterday that the state has spent nearly $80 million to subsidize Medical Mutual Liability Insurance Society of Maryland's premiums since the program was enacted. He issued the cease-and-desist order a day after the company approved the dividend and notified the state.

"With this amount of money at stake, I want to be sure that it is handled appropriately," Tyler said in a statement. He declined to comment further.

The hearing is scheduled for Oct. 5 in Baltimore.

In his order, Tyler complains that Med Mutual gave the state no advance notice of its decision to pay a dividend and no opportunity to "review the methodology" as required by state law.

The order also questioned Med Mutual's proposal to reimburse the state for a portion of the subsidies paid this year but not for earlier subsidies. According to the order, Med Mutual planned to pay the state a certain amount and give the rest to physician policyholders as a credit on their renewal premiums.

The order cites parts of state law that requires that any disbursements from the subsidy fund "not used to provide a rate reduction, credit or refund to a health care provider shall be returned to the State Treasurer for reversion to the Fund."

A Med Mutual spokesman said the company could not comment on the matter.

The physician-owned company, which insures most doctors in Maryland, raised premium rates 28 percent in 2004 and 33 percent in 2005. Physicians, squeezed by other increasing costs and by decreasing payments from health insurers, warned that the jumps could drive them out of the state or put them out of business.

Then-Gov. Robert L. Ehrlich Jr. called the special session in December 2004 but vetoed the relief package passed by the General Assembly because he opposed the 2 percent HMO tax. Legislators overrode the veto when the regular session convened in January 2005.

The last two years have painted a starkly different picture of the malpractice insurance situation. Med Mutual's rates were stable in 2006. In December, the company said claims had fallen and announced that it planned to cut its premiums by 8 percent this year - the first across-the-board drop in at least 15 years.

Now plans to pay the $68.6 million dividend is further fuel for those who wonder whether the problem was short-term.

"To be called in for special session during the Christmas holidays to deal with this crisis, ... and to go from that to [Med Mutual] being able to give out a generous dividend - it makes you wonder just how much of a crisis it really was," said Del. Dereck E. Davis, a Democrat from Prince George's County who chairs the House Economic Matters Committee.

"What it does is lend credence to the argument that the trial attorneys were making that this whole process is cyclical," he said.

Davis said he doesn't know how much of the dividend the state deserves. But with a $1.5 billion structural deficit, he said, "the state sure could use it all."

To Sen. Andrew P. Harris, a Baltimore County Republican and anesthesiologist, the dividend merely means that the risk of malpractice payouts has decreased somewhat.

"I think if the physicians deliver care with less risk, they should be able to keep the benefit of that," Harris said. "I don't know why the state thinks they have claim to that money - but then again, I haven't seen the insurance commissioner's arguments."

Officials from MedChi, the professional society for Maryland's doctors, were not available for comment last evening.

But doctors aren't the only interested party. Because the subsidies were financed by a tax on HMOs, others might also want a piece of the pie.

"There's probably going to be a lot of people," Davis said. "Let's wait and see what comes out, and then we can make an informed decision about who should get what."